October 6, 2022 7:58:48
Asian equity markets are mostly positive despite the negative close in US stocks last night and hawkish Fed comments confirming significant further hikes in interest rates are likely, while also playing down the prospect of rate cuts in 2023. Oil prices, meanwhile, rose after OPEC+ decided to cut back production, which could add to inflation in the short term but may ultimately reduce demand. More upbeat risk sentiment has weighed on the US dollar overnight.
The BoE’s latest Decision Maker Panel (DMP) survey of businesses will attract some attention this morning. Last month’s DMP data showed a further increase in 3-year ahead inflation expectations, which are closely monitored by policymakers at the BoE, to 4.2% from 4.1%. The September construction PMI survey will also be released this morning and is expected to signal another month below the 50 growth/contraction boundary. This evening, BoE MPC member Haskel is due to speak, although it is not clear if he will touch on monetary policy.
In the Eurozone, the ‘account’ (minutes) of the ECB’s September meeting will be published today. That was the meeting when interest rates were raised by a record 75bp to 0.75% for the deposit rate and 1.25% for the main refinancing rate. As future policy decisions will be data-dependent and taken on a ‘meeting by meeting’ basis, it is not clear how much additional signals in their likely path for interest rates there will be. Nevertheless, with Eurozone inflation continuing to accelerate, President Lagarde has indicated that more hikes are to be expected in the remaining two policy meetings this year and possibly in early 2023 and that the ECB is frontloading hikes. Hence, another 75bp hike in October cannot be ruled out.
There are several scheduled Fed speakers later today, including Governors Cook and Waller and Cleveland Fed President Mester (voter). The most recent US economic data exhibited some softness, leading to some pullback in markets for hike expectations in 2023.
The pound overnight recouped some of yesterday’s falls, trading back above $1.13, while the euro has edged above $0.99. UK gilts underperformed, with 10-year yields rising 16bp to 4.035% and 30-year yields up 17bp to 4.20%, the latter being the highest since the BoE’s began temporary purchases. Brent crude oil was steady overnight after rising for a third session yesterday to above $93 a barrel.
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